The Finance Tech Stack: What is the Current State? (Part I)

By: Medha Agarwal and Urvashi Barooah

At Redpoint Ventures, we have been evaluating the finance technology stack within organizations for the last few years. More than ever, we believe that the tools finance uses will be re-imagined — and that the time is now for this evolution.

We believe this next generation of software products will increase visibility, automation, and collaboration for finance teams and unlock critical value.

In this first post we will focus on the current state of the finance tech stack and some insights on what is required for success from our conversations with finance leaders. In the second post we share a market map outlining both the established and emerging players across the stack, as well as our view on the most interesting areas of opportunity.

What is the status quo?

Today, finance teams spend most of their time collecting, cleaning, and analyzing disparate data to piece together a holistic, accurate view of a company’s financial situation. The information flow is extremely interconnected and complicated, requiring many inputs to do their work (as illustrated below). Finance teams need to process information from ERPs, HRIS systems, billing tools, customers, suppliers, etc. — the list goes on! Not only is this process tedious, it takes time away from strategic, high-value activities.

Given finance teams use data from a variety of sources, a lot of time is spent trying to normalize the information to be able to make sense of it and make it actionable. There is also a lot of time spent reconciling data across systems to get a clear and nuanced understanding of various P&L line items as well as business metrics. For example, for a SaaS company to understand true ARR, finance needs to look at information in the ERP, billing system, Salesforce, and perhaps others to understand what their recurring revenue number truly is.

In addition, finance teams spend a lot of time tracking down leaders in the organization for model inputs to plan for the future as well as historical data to understand what has already happened (for example, to reconcile expenses or make sense of sales numbers). Many of our conversations illustrated how complicated and inefficient this process is today. Finance leaders in larger organizations described how in order to do budgeting, they solicit inputs from as many as 50 different budget owners. They do this by sending individual Google sheet tabs or the entire file to input and update the necessary data which often leads to versioning problems and broken models, among other issues. Sometimes this is then converted to Excel and/or inputted into a planning tool like Adaptive Insights to create the plan. Without proper permissions and version control, every step of the process is highly manual, error-prone, and time-consuming.

What’s next?

We believe that there are several trends that have set the stage for the next generation of financial tools. With the shift to (1) strategic CFOs responsible for company strategy and outcomes as well as (2) the increase in remote work, software that automates workflows and increases collaboration across an organization will be key. Reducing the amount of time collecting, reconciling, and manipulating disparate data will allow finance teams to be more proactive in nature, which they haven’t been able to do historically.

To better understand the needs of these users, we talked to dozens of finance professionals across company sizes to better understand their pain points and where the largest opportunities lie. Below we outline five key trends that we heard repeatedly across these conversations.

1. The finance stack is complicated and interconnected — In order to do their daily work, finance teams need information from a variety of sources, including, but not limited to, billing software, spend management solutions, HRIS, ERPs, and sales software. New solutions that find success will build for this reality vs. requiring net-new workflows and adding even more complexity into the process
2. As a result, integrations are key — Pulling data from a company’s existing systems will be necessary for adoption. No established system does this well today, which is why despite the plethora of finance tools in the market all finance teams continue to use Microsoft Excel or Google Sheets as their lingua franca. Of course, a new entrant will not be able to integrate with every potential system on day 1. The key will be finding the right entry point where the pain is so acute that users are willing to engage with an early solution
3. New solutions will speed up workflows vs. automating them away — While full automation would be ideal, we believe that this is unlikely. There is enough nuance and judgment required in finance teams’ work that a human needs to be in the loop. If the solution can streamline and speed up the process, that has a lot of value. In fact, we heard from many CFOs who have adopted tools that attempt to automate tasks like metrics or spend reconciliation that there is not much time savings due to the manual effort required to update what isn’t done correctly or automatically
4. Be clear on who you are building for — This is always important, but we have seen how different customer segments in finance have vastly different needs. Whether building for a small generalist finance team, no finance team, or an established one with specialization across competencies, truly understand the needs and current workflows of your ideal customer. Companies that are laser-focused on whether they are targeting early stage, mid-market or enterprise companies will build the highest-value features and integrations that are necessary for success in that segment.
5. Productized collaboration is the future — Today, the cross-functional collaboration required for finance teams to do their work is extremely manual and time-consuming. We would go as far as to say that collaboration across teams is the bane of a finance leader’s existence. The next generation of finance tools will have collaboration built in to the product. The rise of remote work enhances the need for this because finance professionals can no longer walk the aisles of their offices to align with busy stakeholders ad hoc. However, collaboration must be built thoughtfully, to minimize the risk of organ rejection by the organization and the then inevitable reversion to Excel. This likely includes a UX that is very minimal, simple to use, and does not require non-finance users to log in to do basic inputs.

If you’re building a disruptive company addressing the finance stack and our perspective above resonates, we would love to hear from you.

Originally published at https://medium.com on October 6, 2020.